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Direct and Indirect Taxation · Returns and Payment of Taxes

Tax Deduction and Collection at Source under GST

Updated 10 October 2026 · Fact-checked

TDS under section 51 CGST Act makes notified government deductors deduct 1% from payments to a supplier when the contract value exceeds ₹2,50,000. TCS under section 52 makes e-commerce operators collect tax, up to 1%, on the net value of supplies made through them. Both amounts are paid within ten days after month-end.

Understand Tax Deduction and Collection at Source

Normally the supplier collects GST and pays it to the government. TDS and TCS shift part of this collection to a third party, so that tax is captured early and supplies are brought on record.

TDS (section 51): the Government may mandate a department or establishment of the Central or State Government, a local authority, governmental agencies, or other persons notified on the Council's recommendation (the deductor) to deduct tax at 1% from the payment made or credited to the supplier (the deductee). This applies only where the total value of supply under a contract exceeds ₹2,50,000. Value excludes central tax, State tax, UT tax, integrated tax and cess shown in the invoice.

There is an important exception in the proviso to section 51(1). No deduction under that section is made if the supplier's location and the place of supply are in a State or Union territory different from the State or UT of registration of the recipient. Read both conditions in the question before you deduct.

This proviso governs deduction of central tax (and the matching State or UT tax) under section 51. It is not a rule that an inter-State supply escapes TDS altogether. Inter-State supplies attract integrated tax, and section 20 of the IGST Act applies the CGST provisions, including TDS, to integrated tax, with the deductor deducting at 2%. So the 'different State' check stops the 1% central tax deduction; the 2% integrated tax deduction is the rate for the inter-State case.

For an intra-State supply, the deduction is 1% central tax under the CGST Act plus a matching 1% State tax under the State GST law, so the total TDS is 2%. The State GST law is not in the text supplied, so you should show the central tax part under section 51 and state the State tax part separately.

TCS (section 52): every e-commerce operator, not being an agent, collects an amount at a rate not exceeding 1% (as notified) of the net value of taxable supplies made through it by other suppliers, where the operator collects the consideration. Under the IGST Act the rate is capped at 2%.

The deductee or supplier does not lose the money. The tax deducted or collected is credited to their electronic cash ledger, and they use it to pay their GST liability.

Key rules to remember

TDS rate (CGST Act)
TDS (central tax) = 1% × payment made or credited to the supplier
Applies where the contract value exceeds ₹2,50,000, excluding taxes shown in the invoice. This is the 1% under section 51 of the CGST Act. For an intra-State supply a matching 1% State tax applies under the State law, making 2% in total. For integrated tax, the section 20 proviso of the IGST Act sets 2%.
TDS threshold
Total value of supply under a contract > ₹2,50,000
Exceeds, not 'equals or exceeds'. Value excludes CGST, SGST, UTGST, IGST and cess.
TDS exception (central tax)
No deduction under section 51 if supplier location and place of supply are in a State/UT different from the recipient's State/UT of registration
This proviso governs the CGST deduction under section 51(1). It does not remove TDS on inter-State supplies altogether; integrated tax TDS at 2% is dealt with through section 20 of the IGST Act.
TCS base
Net value of taxable supplies = taxable supplies through the operator in the month − supplies returned in the month
Excludes services notified under section 9(5), where the operator itself pays tax.
TCS rate
Not exceeding 1% (CGST); not exceeding 2% (IGST), as notified
Exact rate is fixed by notification.
Payment due date (TDS and TCS)
Within 10 days after the end of the month of deduction or collection
Section 51(2) and section 52(3).
TCS statement
Monthly statement within 10 days after month-end, subject to extension by the Commissioner; annual statement before 31 December following the financial year
Section 52(4) and (5). The provisos let the Commissioner extend the time limit by notification. The form and manner are prescribed by the rules.
Late payment by deductor
Interest under section 50(1) in addition to tax deducted
Section 51(6).

How to solve Tax Deduction and Collection at Source questions

Use this order for any TDS or TCS question.

  1. 1Identify who is paying or collecting: a notified government body or person (TDS), or an e-commerce operator (TCS).
  2. 2For TDS, find the contract value and strip out all GST and cess shown in the invoice. Check that it exceeds ₹2,50,000.
  3. 3Check location: if the supplier's location and place of supply are in a State different from the recipient's registration State, no central tax deduction under section 51. That is the inter-State case, where integrated tax applies and section 20 of the IGST Act sets the TDS rate at 2%.
  4. 4Compute the amount: 1% central tax under section 51 of the CGST Act (plus 1% State tax under the State law for an intra-State supply), or 2% for integrated tax under the IGST Act. Say which tax your figure covers. For TCS, take supplies less returns and apply the notified rate.
  5. 5Note the timeline: pay within ten days after month-end. The TCS statement is also due within ten days after month-end, subject to any extension notified by the Commissioner under the provisos to section 52(4).
  6. 6State the credit: the deductee or supplier claims the amount in the electronic cash ledger, once reflected in the deductor's return under section 39(3) or the operator's statement.
  7. 7Add interest under section 50(1) if the amount is paid late, and mention refund rules if the deduction was excess.

Quickest way: Four-check shortcut

When to use it: For MCQs asking whether TDS applies or how much is deducted or collected.

  1. Who is paying? Government or notified person means TDS; e-commerce operator means TCS.
  2. Strip tax from the value, then test against ₹2,50,000 (must exceed).
  3. Check State: different State or UT from the recipient's registration means no CGST/SGST deduction under section 51; this is the inter-State case, which is dealt with under the IGST Act.
  4. Multiply: 1% for central tax (and 1% for State tax on an intra-State supply), 2% for integrated tax; for TCS use the rate given in the question and the net value.

Common mistakes in Tax Deduction and Collection at Source

  • Including GST in the contract value when testing the ₹2,50,000 limit.

    Invoices show a total including tax, and students use that figure.

    Fix: Remove central, State, UT, integrated tax and cess shown in the invoice. The Explanation to section 51(1) says value excludes them.

  • Deducting 1% central tax under section 51 on an inter-State supply.

    Students apply the section 51 rate without reading the proviso, or mix up the CGST/SGST and IGST rates.

    Fix: Read the proviso to section 51(1): no deduction under that section if the supplier's location and place of supply are in a State or UT different from the recipient's registration State or UT. Test both conditions. For integrated tax, use section 20 of the IGST Act and the 2% rate, and do not describe the 1% as the IGST rate.

  • Applying TDS when the value equals exactly ₹2,50,000.

    Confusing 'exceeds' with 'at least'.

    Fix: The text says 'exceeds', so exactly ₹2,50,000 attracts no TDS.

  • Computing TCS on gross sales without deducting returns.

    Students forget the definition of net value.

    Fix: Net value = taxable supplies through the operator in the month less supplies returned in that month.

  • Mixing up who claims credit.

    TDS and TCS look alike.

    Fix: The deductee (TDS) and the supplier (TCS) claim credit in their electronic cash ledger, not the deductor or operator.

  • Giving the wrong deadline for the TCS statement and annual statement.

    Payment and statement dates are mixed up.

    Fix: Payment and monthly statement: within 10 days after month-end (the Commissioner may extend the statement date by notification). Annual statement: before 31 December following the financial year.

Worked examples

Example 1

A State Government department, notified as a deductor, places a contract with Shree Traders, Pune, for supply of goods in Maharashtra. The department is registered in Maharashtra. The invoice shows taxable value ₹4,00,000 plus CGST ₹36,000 and SGST ₹36,000. Compute the TDS (central tax under section 51 of the CGST Act, the matching State tax, and the total) and state when it must be paid, if deduction is made in the month of August.

Show the solution
  1. Value of supply for section 51 excludes CGST and SGST, so it is ₹4,00,000.
  2. ₹4,00,000 exceeds ₹2,50,000, so the threshold is met.
  3. Supplier location and place of supply are in Maharashtra, the same as the recipient's registration State, so the proviso does not bar deduction. This is an intra-State supply.
  4. Central tax TDS under section 51 of the CGST Act = 1% × ₹4,00,000 = ₹4,000.
  5. State tax TDS at 1% under the matching State GST law (not in the text supplied here) = 1% × ₹4,00,000 = ₹4,000.
  6. Total TDS for the intra-State supply = ₹4,000 + ₹4,000 = ₹8,000.
  7. Payment is due within ten days after the end of August, that is by 10 September.

Answer: TDS is ₹4,000 as central tax under section 51 of the CGST Act and ₹4,000 as State tax under the State GST law, ₹8,000 in total, payable by 10 September. Shree Traders claims credit in its electronic cash ledger once the amount is reflected in the deductor's return.

Example 2

Bharat Bazaar, an e-commerce operator, facilitated taxable supplies of ₹60,00,000 by various suppliers in a month and collected the consideration. Supplies worth ₹5,00,000 were returned in the same month. Assume the notified TCS rate under CGST is 0.5%. Compute the TCS and state the filing due date for the monthly statement for that month.

Show the solution
  1. Net value of taxable supplies = ₹60,00,000 − ₹5,00,000 = ₹55,00,000.
  2. The rate must not exceed 1%; the assumed 0.5% is within the limit.
  3. TCS = 0.5% × ₹55,00,000 = ₹27,500.
  4. The amount is payable within ten days after month-end. The monthly statement is also due within ten days after month-end, unless the Commissioner extends the time limit by notification under the provisos to section 52(4).
  5. Suppliers claim credit of the amount in their electronic cash ledger, as reflected in the operator's statement.

Answer: TCS is ₹27,500 on a net value of ₹55,00,000. It is payable within ten days after the end of the month, and the monthly statement is due within ten days after month-end, subject to any extension notified by the Commissioner.

Exam tips

  • Learn the numbers cold: 1%, ₹2,50,000 (exceeds), 10 days, 31 December. MCQs usually test one of these.
  • Always show the value stripped of taxes before testing the threshold. Examiners award step marks for that line.
  • In theory answers, write both parts: who deducts or collects, and how the other party gets credit.
  • Remember the contrast: TDS is deducted from payment to a supplier; TCS is collected by an operator on supplies made through it.
  • Link to the IGST Act: section 20 applies the CGST provisions mutatis mutandis, with 2% for TDS and a cap of 2% for TCS.

Practice questions from Returns and Payment of Taxes

Tax Deduction and Collection at Source in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Tax Deduction and Collection at Source: frequently asked questions

Who is liable to deduct TDS under GST?

Departments or establishments of the Central or State Government, local authorities, governmental agencies, and other persons notified on the Council's recommendation. They deduct only where the contract value exceeds ₹2,50,000.

What is the difference between TDS and TCS under GST?

TDS is deducted by a notified deductor from the payment to a supplier, at 1% central tax under the CGST Act (with a matching 1% State tax for an intra-State supply, and 2% for integrated tax). TCS is collected by an e-commerce operator from the net value of supplies made through it, at a rate not exceeding 1%. In both cases the supplier gets credit in the electronic cash ledger.

What are GSTR-7 and GSTR-8?

GSTR-7 is the return commonly used by deductors for TDS, and GSTR-8 is the statement commonly used by e-commerce operators for TCS. The Act itself requires the deductor's return under section 39(3) and the operator's statement under section 52(4); the form names come from the rules.

What happens if the deductor does not pay the tax deducted?

The deductor must pay interest under section 50(1) in addition to the tax deducted. The amount in default is determined as specified in section 73, section 74 or section 74A.